Politicians and economists have debated the likelihood of recession in the United States for the past several months. As you know, the president and congress have enacted a preemptive stimulus package of tax rebates to minimize the effects of a possible recession. While the term "recession" is often used in public discourse, most Americans do not understand its definition. Unfortunately, that definition is elusive. There are two generally accepted descriptions of recession and they are sometimes at loggerheads with one another.
Moreover, one of those definitions is vague by design. The traditional definition of an economic recession is two or more consecutive quarters of negative real economic growth as measured by gross domestic product (GDP). The prediction markets use this definition. Of course, it takes time to compile comprehensive data. There are three separate iterations of quarterly GDP growth - two estimates followed by a "final" number. This final compilation is not released until nearly three months after the end of the quarter it measures. So far, aggregate economic growth has not indicated recession. The initial estimate of first quarter GDP growth was actually positive at +0.6%. A revision to this estimate is due out next week. Since 1961, The US government has recognized the National Bureau of Economic Research's (NBER) Business Cycle Dating Committee as the "official" arbiter of recession. This is a seven member group of academic economists. The NBER does not use any specific methodology for determining the start and end dates of a recession - instead it looks at a variety of economic indicators over various time periods and determines whether to declare that the economy is in a recession based on that data. Here is the NBER's official policy on recession:
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
The NBER is very deliberate in its assessment of the underlying data to avoid the need for revision. Its own policy is to wait "6 to 18 months" after the beginning of a recession to declare that one has started. In fact, they waited 20 months to declare that the last recession officially ended in November 2001! It is interesting to note the US economy actually never had two consecutive quarters of GDP decline during the 2000-2001 period. NBER committee members can complicate things by voicing their own views. They are not restricted as are government bureaucrats. Martin Feldstein, opined in March that his "personal view" was that the United States was already in recession. He reinforced those views just last week in declaring that this recession would be "severe". In contrast, Edward Lazear told a meeting of Wall Street Journal journalists that "the data are pretty clear we're not in a recession." Even the guys who are supposed to decide what a recession is cannot agree.
Meanwhile, the economic data offers a glimmer of hope. The US trade deficit is falling faster than anticipated and this will likely spur anupward revision the 1st quarter GDP due outst quarter was that "the data are pretty clear we're not in a recession." Even the guys who are supposed to decide what a recession is cannot agree. Meanwhile, the economic data offers a glimmer of hope. The US trade deficit is falling faster than anticipated and this will likely spur an upward revision the 1 next week. The consensus of economic experts now is that GDP growth in the 1 actually +0.9%. Monday's release of the Leading Economic Indicators for April was also positive as it evidenced mildly improving conditions- the second consecutive monthly upswing. In an election year with anemic growth, the labeling of the US economic condition will take on urgent meaning. This will put the NBER's business cycle dating committee to the test.
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